Sweet 16 Update - March 23

[dan_s]

I finally have all of the Sweet 16 forecast/valuation models updated for my new oil &n gas price deck.

Except for Veren (VRN) all of the profiles have been updated and posted to the EPG website. Some of the forecast models (AR, CTRA, CRGY, DVN, EQT, MGY, NOG, RRC) will not be updated on the website until late today since Sabrina needs to post them.

Since March 1st the Sweet 16 has gained 1.95% and it is up 0.35% YTD.
The S&P 500 Index has lost 3.92% since March 1st and it is now down 3.64%, primary because of the FEAR of the Tariff War.

MY OPINION is that both the FEAR of "Drill Baby Drill" and the FEAR of "Trump Tariffs" are overblown and the fear will fade this summer.
> Upstream companies are NOT going to expand their drilling programs unless WTI goes over $75/bbl and firms up.
> Demand for energy is going up and the rate of demand growth will accelerate as AI data centers need a lot of electricity and demand for other tech hardware increases. LNG exports from the U.S. are setting new records each week.
> Trump is using the tariffs as a negotiating tool, and it is working. The smart countries will negotiate better trade agreements with the U.S. since they must have access to the U.S. market. Team Trump knows they cannot achieve their goals by causing a recession and there are no signs of a recession.
> Trump's agenda is very bullish for natural gas demand.
> Team Trump knows we need Canadian heavy oil. If Canada will firm up border security, he will drop the tariff on Canadian oil & gas.

Within the Sweet 16 the four gassers (AR, CTRA, EQT and RRC) are all up more than 10% + DVN is up 10.5% because it was grossly oversold in 2H 2024 and VRN is up 29.2% because it is being acquired by Whitecap Resources (WCP). I have not had time to look at Whitecap, so I rate VRN a HOLD for now.

Riley Exploration Permian (REPX) is a potential replacement. I will be focusing on it tomorrow.

Crescent Energy (CRGY) looks like a Screaming Buy to me because of its production mix. It is an "Undiscovered Gasser" that can get its Eagle Ford gas to the LNG export facilities on the Texas Gulf Coast.

SM Energy (SM), Civitas Resources (CIVI), and Nothern Oil & Gas (NOG) are all grossly oversold. They all are trading at deep discounts to the TipRanks' price targets. NOG recently announced an increase in their stock buyback program because they know their stock is a good buy.

Diamondback Energy (FANG) is "On Sale" because of the three "transformational" transactions they are working through. FANG is what I call a "Core of the Core" stock for any portfolio. It is a pure play on the Permian Basin with incredible high-quality "Running Room" in the world's most important oil basin. Diamondback's subsidiary, Viper Energy (VNOM) is also a Strong Buy for "Growth + Income".

All 16 companies should report solid Q1 results. As a group the Sweet 16 is trading at just 3.4 X annualized operating cash flow per share, which is a very low valuation multiple for a group of this quality. CIVI and SM are trading at less than 2 X CFPS

This coming week I will focus on updating the companies in our Small-Cap Growth Portfolio.

I hope to publish my next newsletter on March 31st.